AnnTaylor profit tumbles, to launch boomer concept

NEW YORK (MarketWatch) -- AnnTaylor Stores Corp. on Friday posted a nearly 27% decline in second-quarter profit, hurt by steep markdowns and fashion fumbles, but the women's apparel retailer said it was launching a new store concept targeting the "modern boomer."

The New York-based company also backed its forecast for the year and said its board authorized a new $300 million share buyback plan.

Net income in the quarter ended Aug. 4 fell to $31.7 million, or 50 cents a share, from $43.2 million, or 59 cents a share, in the year-ago period.

Analysts, on average, expected the company to earn 48 cents a share on revenue of $618 million, according to Thomson Financial.

AnnTaylor
ANN, +2.12%
President and Chief Executive Kay Krill said she had expected a challenging quarter given remaining "product issues" and tough comparisons to last year.

"What we didn't fully expect was the extent of the tough, macroeconomic environment, which caused traffic to slow considerably at both divisions and the competitive environment to really heat up the increased promotional activity," she said on the conference call.

Krill said persistent traffic softness and some fashion missteps at both divisions caused the company to be promotional during the quarter, particularly at Loft stores. She believes both divisions are heading into fall with "brand appropriate product assortments" and said the company is positioned to deliver a "good" second half.

Gross margin, as a percentage of net sales, decreased 3.6 margin points to 50.6%, hurt almost entirely by softness at Loft.

Shares closed up 9.4% at $32.43, but more than 28% off the 52-week high of $45.15.

Betting on the 'underserved' boomer

The company, which already operates 887 stores in 46 states, the District of Columbia and Puerto Rico under the Ann Taylor and Loft nameplates, said it's launching a new concept in September 2008 aimed at what it calls the "modern boomer segment."

Tapping into baby boomer demographic, which has more disposable income but fewer shopping options than younger women, hasn't been easy. A number of other retailers are also looking for the right formula to lure these shoppers to stores.

"While there are a number of companies that currently play in the broader boomer market, we believe that this particular segment has been the most significantly underserved and a huge opportunity for us," Krill said on the conference call.

Krill said she would share more details on branding and positioning of the new concept as the launch time neared, and reiterated her expectation that the concept has the potential to be a $1 billion business.

Analysts noted that many other companies have tried to attract this customer, with mixed success.

"We believe there is opportunity for the agile, quick-to-respond, and highly creative company to consistently provide product to this market," independent retail analyst Jennifer Black wrote in a note to clients. "Our sense is that the 'modern boomer' is eclectic and very lifestyle driven. We curiously await Ann Taylor's interpretation of product for this customer."

The new concept is the latest change at the retailer, which has been struggling with same-store sales declines and lackluster traffic levels, and changes in its executive ranks. So far this year, monthly same-store sales have declined every month except for March.

Earlier this month, AnnTaylor's chief financial officer resigned and the company has not yet announced a replacement. Shortly after, the company named Mark Mendelson as president of the new concept. He was previously with Jones New York, where he served since 2001, most recently as chief merchandising officer for Jones Apparel.
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Separately on Friday, AnnTaylor said Robert Luzzi is joining the company as chief marketing officer. Luzzi will report to Krill, and oversee all aspects of marketing, visual, and in-store environment for the company's brands.

Luzzi was most recently executive vice president and chief marketing/creative director with New York & Co.
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which he joined in 2003. He previously spent 10 years at Estee Lauder Inc.
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For the year, the company backed its profit forecast of $2.15 to $2.25 a share. Analysts polled by Thomson Financial expect it to earn $2.10 a share for the year.

The forecast includes same-store sales growth in the low single-digits for the fall season, resulting in full-year same-store sales coming in about flat with a year ago.

AnnTaylor expects gross margin expansion for the fall season of about two full margin points compared to the prior year, with the third quarter down from last year, and the fourth quarter up "significantly" from the prior-year period.

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